Development Finance Institutions Law – Finance and Banking

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The Development Finance Institutions Act, 2020 (Law 1032) (the
“Act”) was passed by the Ghanaian Parliament and received presidential assent on October 27, 2020. The law establishes a framework for the licensing, regulation and supervision of development finance institutions (DFIs) in the country.

Development finance activity is defined in the Act as meaning “provision of short, medium and long term financing, guarantees and other credit enhancement structures to key sectors of the economy in a financially sustainable manner. “Anyone who intends to engage in this activity must be a legal entity registered under Ghanaian law and must obtain a license from the Bank of Ghana (BoG). Notably, however, the law does not apply. not apply to DFIs governed by a multilateral treaty. or under sovereign bilateral agreements such as the World Bank, African Development Bank,

The Bank of Ghana is responsible for regulating and supervising DFIs in the country and is responsible for issuing licenses as well as granting approval to foreign DFIs to establish representative offices in Ghana. Persons intending to obtain a license should send a written request to the Bank of Ghana along with several declared documents and contact details of the company, proposed directors and key management personnel, as well as pay the processing fee. correspondents. There are four license classes available, namely; (Class 1 license) – DFIs that provide wholesale development funding; (Class 2 license) DFIs that provide retail development finance, (Class 3 license) – DFIs that provide collateral development finance; and Class 4 license) – IFDs that offer a combination of one of the three (

Although DFIs are permitted to engage in direct and indirect debt or equity financing, refinancing and loan syndication, among other related activities, they may not engage in the acceptance of any type of deposits. . DFIs must comply with the liquidity and minimum paid-up capital requirements (i.e. the initial funds required to start a DFI and the operational start-up costs prescribed by the BoG) and the associated calculations prescribed for their category of investment. licensed by the Bank of Ghana. They are also required to set up a reserve fund into which a part of the net profits for the year is transferred, calculated on the basis of the ratio between the amount of the fund and their paid-up capital. In particular, DFIs must invest a minimum of 75% of loanable funds in medium (3-7 years) and long-term loans (beyond 7 years) and no more than 25% in short-term loans ( less than 3 years) A violation of the above following a notice from the BoG, would result in a penalty.

With regard to ownership and control, DFIs are required to provide the BoG with a report on its organizational structure twice a year. In addition, any transfer of DFI shares that would affect significant holdings must be made with the prior approval of the BoG. Similarly, a person cannot sell or transfer all or part of the business, undertake a merger, or engage in the rebuilding of a DFI without a formal request and approval from the BoG.

The law also provides for the governance of DFIs, stipulating that a DFI must have a board of directors, a managing director and any other necessary staff. The Board is responsible for the overall corporate governance of the institution and must sit for 4 years with the possibility of being re-elected for a term. In addition, the law provides for the composition, qualification, meetings and performance evaluation of members of the board of directors. DFIs are also required to have audit and risk committees to oversee the audit and risk management functions. Arrangements are made for conflicts of interest and compliance with their disclosure. In particular, the DFI must seek the prior written approval of the BoG for the appointment of a CEO, director and key management personnel.

With regard to restrictions on loans and investments, the law contains provisions prohibiting an advance or loan against the guarantee of own shares of the DFI, limiting the financial exposure of the DFI, restricting transactions with a subsidiary or an insider, restricting loans to staff and limiting the scope of DFI equity investments.

The law also provides guidelines on accounting standards and disclosures in financial statements for DFIs. In addition, the BoG may require the submission of information and data relating to the affairs of the DFI and has the power to conduct reviews of its operations.

There is currently no local development finance institution registered as such with the Bank of Ghana. Entities like the

The National Investment Bank and the Agricultural Development Bank started as development banks, but have since resumed commercial activities. Likewise, the Export Investment and Development Fund (a statutory company that provides grants and loans for agribusiness and export development) was not registered as a financial institution with the BoG. The Ghana Infrastructure Investment Fund, also a statutory company, also offers finance for infrastructure development projects, but is not registered as a financial institution with the BoG.

The World Bank funded the establishment of the Development Bank of Ghana in 2020. This will be the first DFIs properly registered under the law and we expect their specific focus on development projects to set the pace for further development. other institutions.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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